Proposed green aviation fuel tax incentives still fall short -Valero

The Valero refinery next to the Houston Ship Channel is seen in Houston, Texas, U.S., May 5, 2019. REUTERS/Loren Elliott

Jan 27 (Reuters) - Tax incentives for sustainable aviation fuel (SAF) in U.S. President Biden's stalled Build Back Better legislation are not enough for oil refiner Valero Energy Corp (VLO.N) to consider producing it instead of renewable diesel, executives said Thursday.

Biofuel producers successfully lobbied for a tax credit for low carbon jet fuel, made from waste and vegetable oils, to be included in Biden's $1.7 trillion spending package.

SAF generally produces up to 70% less carbon than fossil fuels but is more costly to produce without tax credits, particularly as current production volumes are very low at less than 1% of total jet fuel demand. The White House is targeting 20% lower aviation emissions by 2030.

Refiners such as Valero have been exploring the production of low carbon jet fuel at their petroleum and biofuel facilities.

The latest version of the Build Back Better legislation put tax credits for SAF between $1.25 to $1.75 a gallon, depending on the feedstock used.

Valero, which produces renewable diesel as part of its joint venture with Diamond Green Diesel, said there is still a 70-cent a gallon gap to make its production economic relative to renewable diesel.

"The incentive level proposed in that bill was not sufficient to attract additional investment to make SAF versus the base case of producing renewable diesel with an existing unit," said Martin Parrish, senior vice president of alternative fuels at Valero, on the company's fourth-quarter earnings call.

Valero is still exploring SAF production through its own engineering process, Parrish added.

"We're still confident that SAF production is a question of 'when' and not 'if,'" he said.

U.S. Senator Joe Manchin, a conservative Democrat from West Virginia, pulled his support from the spending plan in December after citing concerns about the deficit and inflation. Biden has said he now must consider a pared down spending bill to get Manchin's support.

Reporting by Laura Sanicola; Editing by Richard Chang

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Reports on oil and energy, including refineries, markets and renewable fuels. Previously worked at Euromoney Institutional Investor and CNN.